Poland keeps trying to overcome by means of administrative methods the negative impact of national electricity policy which has raised electricity prices and caused conflict between Polish Prime Minister Mateusz Morawiecki and the Minister of Energy Krzysztof Tchorzewski.
According to currently available information, the Prime Minister is gradually gaining influence on pricing through the promotion of a loyal official to the post of the President of the Energy Regulatory Office. In particular, the President of the Polish Energy Regulatory Office ERO – Maciej Bando, who was a consistent critic of Prime Minister Mateusz Morawiecki’s policy on state regulation of electricity prices, has been replaced with Rafał Gawin, who is called the former unofficial energy advisor to the head of the Polish government, and who will start working in August 2019.
On July 19, 2019, the Polish Sejm (the Parliament) adopted a special law on compensation of energy-consuming businesses for purchasing electricity in part of related to the cost of purchasing CO2 emissions permits. This legal act is aimed at reducing the financial burden on energy-intensive enterprises and preserving them in the production structure of the national economy as taxpayers of the state and local budgets, as well as important employers for the local population.
The first compensation for 2019 is scheduled to be paid in 2020. About 300 energy-intensive enterprises, from the chemical, metallurgy and pulp and paper industries, will be eligible for compensation for the cost of acquiring CO2 emissions rights included in the electricity price. According to the estimates of the Ministry of Labor and Social Policy of Poland, such enterprises today provide about 1.3 million jobs throughout Poland and are the main employers and taxpayers of local budgets for many medium and small settlements.
It is expected that enterprises located in small settlements will also receive additional preferences for payment of part of the mandatory fees, in particular, there will be a reduction in the excise duty for electricity and the amount of prepayment for contracted current, as well as the exemption from payment of the fee for the development of cogeneration (power plants, where both electricity and heat are produced for the needs of the public and industry). In addition, the Ministry of Entrepreneurship and Technology of Poland is consulting with the European Commission on the possibility of reducing the cost of connected capacity. In such a way Poland hopes to keep the business from shifting production to other countries.
At the same time, the Polish Ministry of Energy issued an order to compensate for the difference between the actual cost of electricity and the fixed prices for certain categories of consumers. In particular, the order contains formulas for calculating the difference in price differentials, separately for the first and second half of this year, and formulas for calculating weighted average electricity prices in the wholesale market, which will be used to calculate the amount of compensation in the second half of 2019.
Under the new rules, as of July 1, energy prices will be frozen only for households, public financial institutions, local governments and hospitals until the end of 2019. Traders supplying electricity at fixed prices will be eligible for compensation from the Price Difference Fund. As of July 1, 2019 traders are not obliged to supply electricity at the price of June 30, 2018 for medium and large enterprises. However, such entrepreneurs will be able to apply for compensation under the EU de minimis State Aid Regulation, which stipulates that the state may subsidize reasonably socially important services. The amount of compensation may not exceed a total of EUR 200,000 for current and two previous financial years.
Compensation payments should be made no later than September-November 2019 in the amount of about PLN 4.3 billion, with the Price Difference Fund already having PLN 2.7 billion in its accounts for payments under the de minimis aid program.
Notwithstanding the foregoing, the Association of Trader Companies, the “Association of Energy Trading”, stated that the Ministry’s order was prepared with violations of the regulation and contained a number of shortcomings. In particular, according to experts, the individual conditions of work and contracts of each supplying company are not taken into account. Traders consider the amount of financial resources reserved for compensation to be insufficient, and the procedure itself to be indicative of unlawful state aid, which could eventually lead to a conflict with the European Commission and require repayment of funds paid by the state to the budget of Poland. In addition, the proposed mechanism creates uncertainty on the financial performance and financial liquidity of the supplying companies.
In the context of violations of the regulation, public discussion of the legal act was held only on July 5-10, 2019, traders’ comments were only partially taken into account. Following the publication of the order, some traders stated that it had a negative impact on the continuation of their activities and threatened to spread speculative practices.
The influential Polish business association Lewiatan also highlighted the threat of freezing existing contracts and the inability to change suppliers by the end of 2019, which is contrary to the EU llegislation and could lead to additional financial losses for consumers. Lewiatan deems it necessary to introduce a method of individually calculated compensation for each trader and take into account the actual losses incurred due to different contractual conditions.
The question remains as to whether this mechanism will be applied in 2020 and whether there will be sufficient funds to compensate for losses in the current year. In particular, fears of a lack of funds were raised by Energa and Tauron, which estimate losses already incurred amounting to PLN 136 million and PLN 214 million, respectively, for the first half of 2019.
Thus, the Polish Government’s policy of curbing the rise in electricity prices has led to uncertainty on financial position of electricity supply companies because of the price difference between the actual exchange value and the regulated prices for certain categories of consumers. The legislation adopted in July 2019 will allow to launch a mechanism of compensation of offset part of the cost of energy-intensive enterprises (a part of the cost of electricity in respect of the right to CO2 emissions) under the de minimis state aid program. Traders, first of all, Energa and Tauron, are concerned about the formula for calculating the amount of compensation and the adequacy of the funds provided. There is also uncertainty about how this aid will function in 2020.
The strengthening of the position of Prime Minister Mateusz Morawiecki in the field of energy policy (in particular, regarding the compensation of the difference between the actual exchange value and the regulated prices for certain categories of consumers), raises concerns of some energy companies in Poland regarding the energy efficiency of the government and the prospects of energy policy, may create conditions for Poland to search for additional sources of electricity supply.
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