New regulations of a “direct line” – what does it mean for the renewable projects?

Let’s try to answer, although it is still not easy, whether the changes in the direct line regulations proposed by government in the draft amendments to the Energy Law published in the beginning of June (Draft), would really open a new opportunity for the development of renewable energy projects.

Existing RES installations

 The repeatedly asked question, whether it is possible to build a direct line connecting the existing producer and energy offtaker, has probably found an answer – though apparently it is not exactly the answer that was expected. When analysing the provisions of the Draft, it is possible, but only if the direct line is built on the plots of land belonging (not clear what does it mean legally) to the energy offtaker. In such a case, the consent of the ERO President for building the direct line is not needed. In accordance with the Draft, direct line is not considered as a distribution system, therefore energy supply through the direct line will be treated as a regular energy sale to the final customer, which is possible as the existing RES installation has already received the ERO license to generate energy. Such energy sales will be charged by the fees applicable only for the sales to the final customer (as for today the costs of redemption of colour certificates and excise tax), though not any distribution costs and additional fees related to the distribution costs (mainly the capacity fee).  We do not know however, how to interpret the phrase about land belonging to the offtaker, whether it means only ownership, or it can be also a lease or even an easement. This is a key issue, because if the plots will not be recognised as belonging to the offtaker, ERO President will for sure refuse to grant permit for building a direct line (such consent has never been granted in the past), as the current provision of Art. 7a section 4 of the Energy Law has not been changed.  The proposed Draft seems to allow to sell energy from existing RES installation to both offtaker connected with direct line or to any other customer through the DSO grid, as there are not any regulations in the Project that would limit such a choice.

New RES installations

 Do the proposed changes in a direct line regulation would open a new area for the development of RES projects? Yes, because they allow to build new RES installations without obtaining connection conditions to the DSO grid. Those installations could be connected to the grid, however just only to purchase energy to cover its own needs. Thus, one of the key factors limiting the possibility of building new RES projects disappears. This is clearly a plus. Draft however does not change anything in the practice of obtaining generation license, where still one of the basic requirements is to obtain grid connection conditions. To be clear, this is not a statutory condition, but only ERO President interpretation of the law, which likely will not be changed if the law remains unchanged in this respect. This is a big disadvantage, which in practice limits this opportunity only to installations possessed by the offtaker, as for the internal energy delivery generating license is not needed. Therefore all issues related to such business model,  which I commented in my previous publication in February HERE are still valid. It means that the new RES installations connected with the offtaker, through a direct line, could be built only in the energy self-generation model (“on-site, behind the meter”), with all current limitations, consequences and doubts.

Was this what we expected?

 In fact, it is difficult to fully understand the assumptions for proposed regulations:

• Why the new RES installations connected with a direct line cannot be built by third parties and sell energy to offtakers using the clear and simple CPPA formula?
• Why is it so important, and at the same time not fully clarified, that the plots, through which the direct line runs, must belong to the energy offtaker? Does it really change anything in construction, and then in managing the direct line?

I consider then the Draft as only the first small step toward the development of the “near-site” model, where the renewable energy installations could be built close to the offtaker site and supply energy through the direct line, under the PPA contract. To enable the “near site” model be widely applicable, and then to give industry access to cheap green energy, further amendments to the Energy Law are definitely needed.

Grzegorz Skarżyński
Partner
Tundra Advisory