The legal framework for the generation business is defined mainly by:
The business of electricity and heat generation requires a licence. PGNiG TERMIKA SA holds an electricity trading licence valid until December 31st 2030, as well as the following licences, each valid until December 31st 2025:
A tariff applicable to PGNiG TERMIKA’s sales of heat generated at the Żerań CHP plant, Siekierki CHP plant, Pruszków CHP plant, Wola heating plant and Kawęczyn heating plant and to the transmission and distribution of heat via the heating network supplied from the Pruszków CHP plant was effective until July 31st 2014. On July 8th 2014, the President of the Energy Regulatory Office approved a new tariff, effective since August 1st 2014.
F December 31st 2014, the company was required to apply the following tariffs for the transmission of heat through the heating network in the areas of Marsa Park, Annopol, Marynarska, Chełmżyńska, Jana Kazimierza. On November 18th 2014, the President of the Energy Regulatory Office approved new heat transmission tariffs for those areas. The new tariffs will be in effect from January 1st 2015 to July 31st 2016.
Since April 30th 2015, the company is also required to apply the tariff for the production of heat at the Regaty heating plant and transmission of heat through the heating network in the Regaty residential estate.
Support for high-efficiency cogeneration in 2015 was provided by a mechanism based on certificates of origin. Following amendments introduced in 2014, which allowed, inter alia, to confirm fulfilment of the obligation to produce a certain portion of electricity from cogeneration by redeeming exclusively certificates of origin awarded in a single year, the market value of such certificates approximates the buy-out prices set by the President of the Energy Regulatory Office, which were as follows:
The current mechanism was reinstated in 2014 and will remain in effect until the end of 2018. However, the European Commission is still analysing its compliance with EU laws.
Thanks to sale of property rights incorporated in certificates of origin, producers derive additional revenue that makes production of electricity from high-efficiency cogeneration economically viable.
The system of awarding certificates of origin is due to expire shortly (December 31st 2018), which means that it fails to encourage investment.
Currently, work is under way to prepare a system supporting high-efficiency cogeneration units in the long-term horizon, i.e. beyond 2018. Four bodies, comprising all major producers of energy from cogeneration, namely IGCP, PTEZ, IGG and IEPiOE, are involved in the development of a new system supporting cogeneration. The newly developed system will be compliant with the European Union’s new state aid rules. It will also ensure the economic viability of investment in new cogeneration capacities and will help achieve the energy and climate policy objectives until 2030.
In 2015, the company was allocated free-ofcharge emission allowances:
Conclusions from the European Council meeting, adopted on October 23rd−24th 2014, set out the energy and climate policy objectives for 2020−2030. The new targets provide for a 40% reduction in greenhouse gas emissions by 2030 (relative to 1990), a 27% increase in the share of energy from RES (EU binding target), as well as a 27% improvement in energy efficiency (indicative target).
In mid-2015, a draft amendment was proposed to the Directive establishing a scheme for greenhouse gas emission allowance trading for the period beyond 2021. The amendment upholds the 43% target reduction in CO2 emissions by ETS-covered sectors by 2030 (relative to 2005), at a proposed pace of 2.2% beyond 2021 (currently 1.74%). It also provides that the list of sectors exposed to CO2 leakage should be shortened (to approximately 50). Further, under the amendment, the benchmarks serving as the basis for emission allowance allocation are to be lowered by 1% each year starting from 2008 (in which historical data was acquired) until the middle year of the trading period, which means they may change by 17%. The Commission reserves the right to adjust this trend by +/- 0.5%, which may necessitate technological progress acceleration of up to 1.5% per year.
Under the draft amendment, Poland is to receive as much as 43% of funds from the Modernisation Fund. The mechanism governing the allocation of free emission allowances is being negotiated between the Ministry of Economy and the European Commission.
Late 2015 saw the conclusion of negotiations on a draft amendment to the BAT reference document concerning large combustion plants. Given their implementation into Polish law, the agreed BAT Conclusions (the key part of the BAT reference document) will set out the environmental framework for defining the future of the LCP sector from 2020 onwards. The emission limits, as defined in the document, and methods of their monitoring and settlement will be a binding criterion in procedures for awarding integrated (IPPC) permits. The BAT requirements markedly tighten the emission standards for hard coal-fired sources exceeding 50 MW. Moreover, the BAT Conclusions add emission standards for, inter alia, Hg, HCl, HF and N2O to the existing list of controlled pollutants.
The cost of adapting installations so they meet the emission caps set out in the draft BAT Conclusions may in many cases undermine the economic viability of their further operation. Where it is impossible to bring an installation in line with the BAT requirements, a derogation may be used as the last resort. However, such derogation will only be granted where justified on a case-by-case basis, based on a technical and financial analysis. As planned, the document is to be formally adopted by the EU in mid-2016, which means that the emission requirements set forth therein will apply as of 2020.
Key conclusions of the COP21 Summit held in Paris, which in December 2015 were included in the new climate agreement:
Following conclusion of the new climate agreement, the EU will uphold its emission reduction targets for 2030.
The implementation into Polish law of the Industrial Emissions Directive (IED) as well as the BAT conclusions which are currently being developed require the Company to reduce its industrial emissions. These challenges are being met by Company’s long-term capex plan, which addresses the identified requirements of the tightened environmental laws.
As the Warsaw municipal waste incineration plant is expanded, the quantity of heat supplied to the city’s municipal network will increase. As a result, PGNiG TERMIKA’s share in total heat supplies to the Warsaw municipal network will fall from the current 98%, to 95% in 2019.
Joint marketing efforts with Veolia Energia Warszawa SA (VEW) and connection of further districts of western Warsaw to the municipal heating network should significantly mitigate a potential future decline in the volume of heat produced by PGNiG TERMIKA SA.
In November 2014, PGNiG TERMIKA and VEW SA signed an energy partnership agreement covering the city of Warsaw. The agreement set out the general terms of cooperation between the parties in optimising and advancing the development of the city’s heating network. As an outcome of the shared effort, the parties agreed the terms of contracts for the provision of services promoting the development of the heat market in Warsaw and for the design and construction of a heat main linking Warsaw’s and Pruszków’s heating systems, scheduled for completion by December 31st 2020. The main is to serve as the key source of heat supply for Pruszków, with at least 770 TJ of heat produced by PGNiG TERMIKA’s Warsaw plants expected to flow to the town every year through the new infrastructure.
The agreement for the provision of services promoting the development of the heat market in Warsaw rewards VEW for its effective efforts leading to a net growth of the market. The ‘success fee’ formula was adopted to encourage the service provider to maximise its efforts to achieve the defined goals of increasing the capacity contracted from PGNiG TERMIKA sources and, consequently, the volume of heat sold. Concurrently, the efforts are to promote increased utilisation of efficient cogeneration sources, leading to a higher electricity output. The agreement is a fixed-term agreement due to expire in 2027. The market is expected to grow by 152 MW in net terms over the initial three years (2016−2018).
Tighter gas and dust emission standards in effect from 2016 and the upcoming BAT Conclusions to be implemented after 2020 force operators to undertake extensive upgrades of their power and CHP assets. In order to meet the more stringent emission requirements, PGNiG TERMIKA has been gradually modernising its generation assets under its Long-Term Capex Plan. The technical and economic aspects of bringing the company’s installations in line with the new requirements involve certain risks. In addition, procedures for seeking a derogation from the BAT Conclusions are not yet known.
Probability that the risk will materialise:
Risk materiality level
