Is the Participation Fund the New 10H?

How Polish Law Learned the Art of Subtle Blackmail

Nearly ten years ago, the government introduced the 10H law, officially out of concern for the landscape and residents’ peace. In practice, this meant the end for wind energy – in Poland’s highly dispersed development, finding locations that met the new requirements became a practically impossible task. It was a simple, direct mechanism and – it must be admitted – effective in its purpose.

In 2023, the 10H rule was relaxed to 700 meters, reopening the possibility of building turbines in closer proximity to buildings. However, the current political arrangement has meant that further liberalization to 500 meters remains blocked, despite ongoing attempts to implement it.

In this situation, the legislator reached for a new solution. A few weeks ago, in an amendment to the law on wind power plant investments, a mechanism appeared that is supposed to increase social acceptance for wind projects. It’s called the participation fund, though its construction resembles rather a sophisticated form of economic pressure.

As is often the case with Polish regulations, the details are crucial. These, however, raise serious doubts, particularly among investors who must deal with them in practice.

The participation fund is a much more sophisticated tool than the direct ban from the 10H law. Instead of explicitly prohibiting construction near buildings, it gives the investor a choice: pay an additional 20,000 PLN annually for each MW of power (calculated from all wind power plants covered by the license to operate) or move away from buildings to a distance greater than 1,000 meters.

In practice, the difference is similar to that between a parking ban and a paid parking zone – in both cases, drivers look for parking elsewhere, but in the second case, one can speak of “free choice.” The mechanism allows avoiding the accusation of directly blocking investments, though the economic consequences may be equally effective.

The Illusion of Free Choice

The legislator’s assumption is to reconcile investors’ interests with local communities’ expectations through a mechanism of financial participation in benefits. In theory, the solution seems fair and well-thought-out – residents receive regular participation in profits from wind power plants, and investors can build closer to buildings, gaining social acceptance for their projects in return.

The system is supposed to encourage communities to actively support investments instead of blocking them. Local communities stop being passive witnesses to energy transformations and become their participants, which should theoretically reduce resistance to new technologies. The legislator assumes that residents’ financial interest will translate into their support for specific projects.

Fund Without Guarantee of Support

In practice, however, the participation fund creates an asymmetry between different parties in the investment process. Residents receive guaranteed, regular financial inflows regardless of the project’s actual economic results, but bear no costs or risks associated with its implementation. The entire burden of complicated administrative procedures, potential delays, regulatory uncertainty, and business risk rests solely on the investor.

This mechanism leads to a situation that economists call “moral hazard” – when one party reaps benefits without bearing the consequences of their actions or decisions. The fundamental problem is that financial participation does not automatically guarantee social acceptance. The investor pays for the right to build closer to people but receives no guarantees in return that these same people will actually support their investment. The financial mechanism and the social acceptance mechanism operate independently of each other.

As a result, residents can combine two seemingly contradictory strategies: reaping financial benefits from the fund and actively opposing the investment through protests, petitions, and blocking administrative processes. This creates a specific social dynamic where the local community can use “playing both sides” tactics – publicly showing reluctance toward investment plans while privately expecting their implementation due to the accompanying economic benefits.

Thanks to such a mechanism, residents can maintain the image of “reasonable critics” of wind energy in the eyes of their surroundings without giving up financial profits. This allows them to later explain that despite their efforts and resistance, the project was implemented against their intentions, which removes the burden of responsibility for “accepting funds from the opponent.” Thanks to this, collecting participation funds can be presented as an inevitable consequence of decisions made at higher levels of authority, rather than as a conscious decision by the recipient. This state of affairs puts the investor in the paradoxical role of someone who not only finances their opponents but additionally pays for the possibility of being criticized by those who benefit from their financial support.

Although the participation fund may at first glance seem like a fair solution – the local community benefits from the presence of turbines – in practice it leads to a series of economic and legal problems that may significantly impact the development of wind energy in Poland.

New Item in the Cost Estimate

The most direct effect is an increase in operating costs. The payment to the participation fund is 20,000 PLN per MW of power annually. For a typical 6 MW turbine, this means an additional 120,000 PLN annually – a cost independent of actual energy production. In practice, this translates to an increase in operating costs of several percent, making the fund one of the main financial burdens alongside servicing, land lease, and building tax.

This amount, while it may seem small in the context of the costs of building and operating the entire project, is crucial for investment profitability, especially in current market conditions where margins in wind energy are already severely limited.

Law Full of Unknowns

The legal construction of the fund also raises serious doubts that may lead to administrative disputes and delays. The original version of the law stated that the fee is calculated “from all wind power plants covered by the application for an environmental conditions decision.” However, this provision did not account for several practical scenarios, which prompted the legislator to change the approach.

The new wording provides that “the producer, by December 31 of each year, pays annually to the participation fund an amount proportional to the installed electrical power of the wind power plant, calculated from all wind power plants covered by a license to conduct business activities in the field of electricity generation from renewable energy sources or entry in the register of energy producers in small installations for a given location, assuming that the amount paid for each 1 MW is 20,000 PLN.”

This change solves some interpretational problems of the original regulation. In the old system, fundamental questions arose: What happens when not all planned turbines ultimately obtain environmental permits? Investors often submit more turbines to the procedure than they actually plan to build, creating a planning buffer in case of refusal for some locations. The original wording of the provision meant they would pay for all submitted turbines, even if they only implemented part of the project.

The previous version of the law also did not specify how to calculate fees in case of changes to turbine technical parameters between obtaining environmental decisions and actual implementation. If an investor declared 7 MW turbines but ultimately built 5.6 MW units, it remained unclear whether the fee should be calculated from the originally declared power.

The new solution, based on actually installed power covered by a license or registry entry, seems more logical from a practical standpoint. It eliminates the main problems of the previous regulation, linking fees to actual production activity rather than plans at the design stage.

However, the lack of proportionality in fee calculation remains problematic. Even if out of 15 implemented turbines only one is located closer than 1,000 meters from buildings, the fee will cover the entire installation. This raises the question of the mechanism’s economic logic – can we speak of “fair sharing of benefits” here, or rather of a tribute for mere location in a given municipality?

Will the Fund Affect Investment Pace?

The combination of additional costs, interpretational uncertainty, and complicated procedures may discourage some investors from implementing projects in Poland. In an industry where decisions are made based on long-term financial analyses, such unpredictable burdens constitute a real investment barrier.

Particularly worrying is the risk that similar mechanisms may be introduced for other renewable technologies. If the participation fund becomes a precedent, the legislator may reach for analogous solutions for photovoltaic farms, energy storage, or biomass installations. Such developments may lead to systemic treatment of RES investments not as a desired element of energy transformation, but as a source of additional fees compensating for social opposition – even if this opposition is more political than actual in nature.

Will the Fund Pass the Test of Practice?

The final assessment of the participation fund’s effectiveness will only be possible after several years of its operation. It will be crucial whether it actually contributes to increasing social acceptance for wind projects, or whether it becomes another administrative and financial barrier. One thing is certain – Polish wind energy faces another regulatory challenge that complicates the already complicated mathematics of renewable projects. Investors must now include another element of uncertainty in their calculations, which may affect the pace of achieving the country’s energy transformation goals.

Grzegorz Nowak
Senior GIS Analyst