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Wind Power in Poland Business Directory 2010 New legislation triggers changes 10 There are probably no statistics available for the number of investors in the wind farm sector who have experience with the pre-payment mechanism of “bonded warehouses”. With the March amendments to the Energy Law, however, wind farm investors – and particularly speculators who have had free access to grid connections – will now have to “pay to play”, and will no longer be able to keep their free option on grid access. A key change to the Energy Law is that connection applications to the electricity grid will now require a down-payment, payable at the moment the request is made. The fee is 30 zlotys per kV of connection capacity (limited to the lesser of: 3 million pln or actual connection costs). The change is meant to address criticism that legitimate, well-capitalized industry investors have been unable to get access to Poland’s electricity grid, since earlier applicants (in some cases without the financial resources or industry experience to develop a wind farm) had been granted grid access for free and without demonstrating the intent or ability to put power into the grid. Recent Legal changes Amendment to Energy Law (in force as of 11 March 2010) particularly affects: a) Grid connection conditions a. Fees for grid connection applications = 30 pln per KW applied capacity b. 9 September 2010 deadline for payments - applicable to those who hold valid grid connection conditions expiring after this date c. Fees capped at 3 million pln or actual connection costs - the lower of. d. Requires new documentation - local zoning plan or zoning decision - to be attached to application e. Grid connection issuing authority must issue decision within 150 days f. Grid utility must publish full data on existing and pending grid applications b) New financial support system impacts existing green certificates system a. Entities trading with end customers must purchase green or brown certificates, and present to the regulator; or pay substitution fee The down-payment is not the only change – the investor must also now enclose with the request an excerpt and a sketch of the local zoning plan (if such a zoning plan exists for a given site) or decision regarding planning permission (if there is no zoning plan) allowing the wind farm to be located on a given site. While the decision is made at the request of an individual investor, it is in the general public domain. Opportunistic “use” of a successful request for amendment of the zoning plan filed by a competitor will therefore become possible. “Grandfather” clauses and preexisting rights Prior to the acquisition of a wind farm project at an early stage – before the construction permit is obtained and the proverbial spade slices into the ground – a painstaking due diligence is carried out, including examination of the grid connection conditions. Since the March amendments are now in force, more attention should be paid to the connections conditions date than was previously warranted. Here’s how it works: those investors that obtained the connection conditions prior to 11 March 2010 and for whom the period of validity of the connection conditions ends after 11 September 2010 have the obligation to make the down-payment by 9 May 2010. If they fail to comply with these requirements the connection conditions expire. In a second scenario, if an investor obtained the connection conditions far enough back in time that they expire prior to 11 September 2010, he does not have to do anything – their conditions will continue to be valid despite the lack of down-payment – but of course only until the validity period ends. Investors of this type should therefore hurry with the signing of the connection agreement. For example, I once negotiated a connection agreement for a client for almost a year after the technical conditions for connection had expired. Well, this will no longer be possible. A third scenario is investors who managed to file the request for connection conditions before the amendments came into force but have not yet obtained them. They now have the obligation to make the down-payment but also to provide an excerpt from the local zoning plan or planning permission. Time limit? No later than the beginning of September this year. Dr Eligiusz Krześniak, Partner Squire Sanders Święcicki Krześniak sp.k Consolidation and “Musical Chairs” – the music just stopped The purpose of the amendments is to bring order to the market, to speed up the procedure for issuing grid conditions – which recently has begun to look more and more like a crawl – and eliminate from the game small businesses that do not have the appropriate financial resources and are hoarding connection conditions for short-term profit. Also the introduction of a financial threshold should free up grid connections, consequently leading to an increase in the number of wind farms feeding power into the grid. There is a certain paradox that in a country in which the number of major wind farms actually operating is close to a single digit, the number of issued grid connection conditions for future “virtual” wind farms has reached almost 20,000 MW. It is difficult to assess the extent to which these objectives will be realized. We will certainly see an improvement in the time needed for the procedure of issuance of conditions. I am sceptical however of
2010 Business Directory Wind Power in Poland for wind energy developers the declaration of restrictive compliance with the obligation to issue connection conditions within the statutory time limit of 150 days from the day the request is filed. While there are some penalties in the Energy Act to electric utilities that delay the process, the reality is sometimes different. In practice, we have seen that administrative authorities have sufficient legal means to prolong the handling of even the simplest cases nearly as long as they wish. I am not saying that this will be the case in this instance, but a certain amount of caution is advised with respect to time limits laid down in the law. The latest amendment will also certainly eliminate a large group of business entities from the market who are often more interested in merely selling grid access than developing wind farms. The question is whether the amendment introduced has come too late. The amount of connection conditions issued earlier, of which a significant portion will definitely survive, means that it may continue to be difficult to obtain entirely new conditions. And what about the implications for speculation in grid connection conditions, which has long been the drawback of the Polish market? The level of interest in trading will definitely fall – but not straightaway. The coming months will see a considerable increase in turnover of projects in the primary stages of implementation. This is because it is obvious that all of those investors who have already received the connection conditions and do not have the cash to make the down-payment will do all they can to avoid losing the conditions received. For many such small businesses, the sale of a project may be the only practical financial option. Further amendments to legislation The issue of what may await us is an issue that cannot go without mention. The Polish parliament is currently reviewing the bill on renewable energy resources and their rational application. Regardless of the attempt to introduce the rather bizarre principle that renewable energy resources are “the property of the nation entrusted for management to the municipality” and the overkill of promotion of geothermal energy, the bill would probably have a positive effect on the wind energy market, if it is to be passed. But is is in an early stage of parliamentary works and the government made is clear recently that it is not happy with it. So the chances of it being passed as is are not high. Dr Eligiusz Krześniak, Partner Squire Sanders Święcicki Krześniak sp.k. www.ssd.com Taiga Mistral fund has secured 130 MW wind farm projects, seeking to buy additional 70 MW wind farm projects 11 Taiga Mistral, the Spanish private equity fund, operating on the Polish wind energy market since 2008, is finishing its major stage of investments in wind farms through the purchase of three major projects totaling 130 MW of power. Taiga Mistral plans to reach the target of 200 MW by 2011 with the planned investment of circa 300 million euros. Taiga Mistral has nearly completed its first, key stage of wind farm projects, with the acquisition of 130 MW of power projects in north Poland in 2009. The first projects will start to be built at the end of 2010, or beginning of 2011. The medium-term strategy of the fund in Poland is to build a portfolio of 200 MW wind power, supported by investments exceeding euro 300 million euros. This would represent approximately 20% of the total wind power which has been already installed in Poland (about 700 MW total). The investments will be financed from both the fund’s own capital and bank financing. The fund’s financing is secure, backed up by strong Spanish firms, such as Banco Santander, Caja Navarra, Caja Avila and Spanish individuals. Taiga Mistral is also looking towards additional EU financing support for their projects in Poland. “We see very positive feedback from Polish and foreign banks, which have expressed strong interest in financing our Polish wind farms” - says Mikel Garay, Managing Director of Taiga in Poland. The fund is looking to acquire additional 70 MW Wind Farm investment opportunities in Poland. Mikel Garay, Managing Director of Taiga in Poland. “We are now looking for local experienced developers interested in selling us their wellprepared and mature wind farm projects. These new 70 MWs will close our fund’s target. We are only interested in projects with permissions obtained”, emphasizes Mikel Garay. n
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