Race to Beat Polish Subsidy Cuts Drives Wind-Project Push

Feb 07, 2014 5:57 am ET

(Adds PGE, Energa acquisitions in 12th paragraph.)

Feb. 7 (Bloomberg) -- Poland, where 90 percent of power comes from coal, may be an unlikely clean-energy hub. Yet wind capacity that almost doubled in two years is set to grow further as developers rush to start projects before subsidies change.

“I’m sure that many companies will be trying to secure grid-connection agreements,” said Michael Mikulla, a developer whose EKO Energia Polska Sp. z o.o. clinched a deal with the grid operator to link Poland’s largest wind farm to the transmission network last month.

EKO Energia is among companies racing to get projects under way before Poland cuts subsidies -- potentially in 2015 -- and starts auctions for fixed-price contracts to drive down prices for renewable energy. Prime Minister Donald Tusk has pledged to stem increases in consumer power bills while meeting a European Union mandate to clean up emissions from electricity generation.

“We see much anxiety toward the new regulations,” said Lukasz Dziekonski, management-board member at energy investor the Marguerite Fund. “We expect developers will be trying to sell, or at least to connect projects to the grid until mid-2015. The wind-farm market is becoming a buyers’ market.”

By connecting projects before the cut-off date, developers can choose to receive the existing subsidies or wait for the new system. Some currently opt for tradable green certificates, which utilities buy to meet clean-energy targets. Certificates for new projects with no grid deal will be superseded by auctions next year, forcing developers to compete on price.

‘Best Time’

“Now is the best time for investing in renewables as developers can still choose if they want to remain in the old support regime or wait for the new one,” said Deputy Economy Minister Jerzy Pietrewicz. “The supply of renewable power won’t depress prices as we expect more demand from a recovering economy.”

EKO Energia expects to start generation at its planned 225- megawatt wind farm in Poland’s Silesia region in 2018. Securing a deal to connect the 400 million-euro ($544 million) project to the grid will help attract investors, according to Mikulla.

“The fact that we could get tradable certificates can markedly improve our business plan,” Mikulla said in a Jan. 31 interview in Poznan, Poland.

Helped by subsidies, the country’s installed wind capacity grew 34 percent last year after jumping 41 percent in 2012 and now totals 3,462 megawatts, according to grid operator PSE SA. Capacity is set to rise to 4,040 megawatts this year, amounting to more than a 10th of total generation.

Subsidy Changes

The Economy Ministry expects to cut subsidies by more than 2.4 billion zloty ($780 million) in 2015, reducing power prices for consumers by 26 percent to 20 zloty a megawatt-hour. The plans are laid out in draft regulations due for a cabinet vote in the coming weeks, according to minister Pietrewicz.

“Finalizing wind projects before new rules are implemented seems the most rational way to go,” Bogdan Pilch, the head of developer PGE Energia Odnawialna SA, said Jan. 29. The company has “several hundred megawatts of wind projects in the pipeline at different stages of development.”

PGE and Polish utility Energa SA acquired wind farms from Dong Energy A/S and Iberdrola SA last year for a combined $584 million, increasing the share of renewables in their generation mix. Energa, whose wind assets now total 165 megawatts, plans to add 180 megawatts to 220 megawatts by the end of the decade.

“If investors are more eager to sell projects in the future, Energa may benefit thanks to lower acquisition prices,” Chief Financial Officer Roman Szyszko said Jan. 22.

European Cutbacks

Germany, France, Spain, Britain and Italy have all trimmed clean-energy subsidies after a boom in installations drove up power costs for consumers. Investments in renewables in Europe fell 41 percent to $57.8 billion last year, according to data compiled by Bloomberg.

Investors in Polish renewables that fail to get projects off the ground before the new rules come into force may also face delays to the start of auctioning, according to the Marguerite Fund.

“We need some two years before the administration will be ready for tenders,” Marguerite’s Dziekonski said. “I can’t imagine that us, or any other fund, would finance a wind-farm project before it wins a tender.”

Regardless of delays, developers will struggle to bring wind ventures to fruition without state support, according to Mikulla, who cited the recent decline in European power prices.

Year-ahead power in Germany, the region’s largest electricity market, has slumped about 60 percent since peaking at 90.90 euros a megawatt-hour in July 2008. The share of renewables output in Germany more than doubled in the past seven years, according to data from researcher AG Energiebilanzen e.V.

“Recent power prices won’t allow for profitability of wind farms without state support,” Mikulla said. “But we have many German specialists involved in our wind-farm project. They all believe that Poland is the state which wants renewable energy and which will find the right solution.”

--Editors: Amanda Jordan, Will Wade