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22 August 2024

Direct line – a forgotten provision?

Soon a year will have passed since introducing legal regulations allowing for construction of direct lines, while the register maintained by the Energy Regulatory Office (ERO) only discloses one 350-meter long 0.99 MW direct line connecting a consumer with a PV system. Great expectations and utter lack of results. 

Why a direct line?

It allows for the direct supply of green energy to industrial consumers from RES installations located outside the consumer’s premises, without using distribution network, i.e. without the requirement to obtain connection conditions.

Seeing photovoltaic systems sprouting like mushrooms on the roofs of production halls, as well as any undeveloped patches of land, a question comes to mind: why does no-one have those PV systems built right behind their own fence?

Historical background

Direct line regulations have already been incorporated into the energy law many years ago, however in a shape that seems to have been inspired by Greek islands or remote Arctic outposts, because our legislators assumed that (to simplify) a direct line could be built only in the absence of a distribution network.

The battle to reconcile regulations with actual needs took several years. Two main potential beneficiaries of the aforementioned regulations, that is the industrial sector and the RES sector, desired regulations that would support the expansion of the energy self-production business model, which contributed to the lively development of installations built on company premises. Simultaneously, the industry was afraid that the new solutions will go against the rationale behind the self-production model, lowering profitability of such installations. For the generation sector, a direct line loomed as a threat to their energy sales and distribution revenues, while the ERO saw it as a breach in the market model based on the assumption that energy may be supplied only through the distribution system. Unsurprisingly, this approach resulted in a regulation that nearly equalized the price of such energy with those paid by consumers buying energy from the distribution network, while simultaneously maintaining all the risks connected with self-generation of energy. At the same time, several formal obligations were imposed in excess of those already in place for self-generation. This was called a compromise between the interests of the consumers and generating entities, while in fact it was not.

Current regulations are not viable

If an enterprise wants to have a PV system operating as part of the self-generation model, they have to apply for connection conditions, but in the majority of cases these are agreed with the DSO without any significant difficulties.

If the same enterprise however wants to connect to a PV system across their own fence using a direct line, they must also apply for connection conditions, but this time in a procedure involving additional requirements, going as far as completing a grid impact study. And this is just the first obstacle.

Surplus energy generated by a PV system operating under the self-generation model may be sold to the grid after obtaining a generation license. Using a direct line for the same purpose, however, additionally requires a trading license.

Last but not least, if the enterprise themselves consume the energy generated under the self-generation model, they do not have to pay distribution costs – however should they want to use a direct line, a so-called solidarity charge will be imposed, which amounts to around 80% of the distribution costs borne when buying energy from the grid.

I must now apologize to the reader for the simplifications contained in the above comparisons. I’m aware of several variants and exceptions. They, however, do not change the general conclusion that it makes limited sense for one consumer to bear all the risk in order to obtain a mere 20% savings in distribution costs. Moreover, let’s not forget about additional obligations connected with keeping a direct line operational and, about the construction costs for such a line and its later maintenance.

Much needed changes

Without going into too much detail, there are three changes that are crucial, if the direct line is to become a viable solution:

– removing the solidarity charge in its present form, making any “solidarity” burdens imposed on energy delivered using a direct line significantly lower, more similar to what is imposed for the self-generation model. This would reinstate an acceptable risk profile for building RES installations connected by the direct line.

– simplifying the connection procedures, as the energy supplied through a direct line will, to a vast extent, be used onsite. This means that – apart for extreme cases of significant amounts of surplus energy being exported into the grid – a direct line will have negligible impact on the distribution network.

– legislating an exemption for using a direct line to introduce energy into the distribution network without a trading license. The requirement for an entity which delivers dozens or even hundreds of MWh per year into the grid to obtain and maintain an energy trading license would seem unreasonable.

It is pleasing to see mentions of changes in the regulations, however timid these changes might be. The direct line itself, instead of becoming a mainstream solution, has now become a forgotten, obscure regulation without any chances of visible success in its present shape.

Grzegorz Skarżyński
Partner
Tundra Advisory