Public consultations on the assumptions underlying the bill amending the Act on Renewable Sources of Energy

Energy clusters - what do we know about them?

Legal Alert (23/2016)

A new Act amending the Act on Renewable Sources of Energy came into force on 01 July 2016. It introduces a general operational framework for energy clusters, and potentially it may create opportunities for investments in the scope of various categories of renewable sources of energy. Today we are aware that the concept of energy clusters needs to be discussed and clarified in more detail - one could expect that the amendments planned to be introduced at the end of the year will take care of that. The potential directions that the changes to the regulations concerning clusters could take were discussed during public consultations which were hosted in the Sejm on 07 September 2016 under the patronage of the Minister for Energy.

What is the energy cluster?

In line with the first part of the legal definition of Article  1.15a of Act on Renewable Sources of Energy, an energy cluster is a civil law contract concluded by natural persons, legal persons, scientific units, research and development insitutes and local government entities, and focused on production, balancing the demand for, distribution and trade in energy derived from renewable sources and other sources or fuels within the distribution grid, with a voltage not exceeding 110 kV. An energy cluster covers either one district (powiat) or five municipalities (gmina).

Considering the definition above, a cluster is an agreement of entities aimed at conducting business linked with local generation, balancing the demand for, distribution and trade in electricity. The activities of the cluster are restricted in terms of territory - to specific regions governed by local government units, and in terms of technology - to specific categories of grids that can be used for their activities.

In line with the intentions of the lawmaker the scope of the cluster's activity should be broader than the scope of power cooperatives. The territorial restriction stems from the rationale behind setting up energy clusters as such, i.e. activities linked with the demand for energy and the services of distributing it to local communities (local recipients), especially in rural regions where the quality of distribution services is lower. The clusters are expected to use local resources in order to create energy security in such rural areas, understood as the security of generation and delivery of electricity.

Energy cluster - the legal form

The legal definition of the energy cluster quoted above indicates that clusters are civil law contracts. Such a broad concept has been used deliberately - energy clusters should be able to take the form of a partnership, commercial law company or an ordinary civil law contract. Clusters also have the option of assuming the form of a cooperative. It needs to be pointed out - and the issue was stressed during public consultations as well - that the legal form will become crucial when the cluster decides to apply for external financing, because financial institutions will favour transparent and stable structures. At the same time, lack of regulations on supervision, penalties or regulatory restrictions regarding withdrawal from such structures may prove to be their weaknesses. 

In line with the second part of the legal definition the energy cluster is represented by a coordinator, namely a cooperative, a union or a fund established for that purpose or alternatively, a cluster member appointed to fill that role in a civil law contract.  At the same time, as per Article 38a.1 of the Act on Renewable Sources of Energy, the business activity referred to in Article 32.1 of the Energy Law is conducted under a licence issued to the energy cluster coordinator or alternatively, based on the coordinator being registered in the record of regulated activities. Hence, it can be concluded that, as a rule, any member of the cluster can become the coordinator, providing they possess a licence (or are entered into the appropriate record) that is valid in respect of the object of the cluster's business activity.

Do energy clusters create good opportunities for investors?

Clusters are agreements that are primarily aimed at balancing the needs of recipients.  As indicated, such balancing within the cluster should embrace both power generation (proportionate to the demand for energy) and the potential use of grid energy storage technologies. It needs to be noted though that the issue of balancing the demand is not discussed in detail in the new regulations (most likely, the upcoming amendments will include the appropriate rules).  Specifically, as observed in the course of public consultations, a doubt arises whether energy clusters are allowed to produce electricity in a volume that exceeds the local levels of demand so as to sell it outside the cluster.

According to the opinion expressed in public consultations, energy clusters may prove to be an interesting option and the only chance for wind power industry to secure the operational support that will guarantee effective functioning of its facilities. This is so because investors hope to receive support for wind energy plants that have relatively low power generation unit costs through their aggregation (within the cluster) with other, more stable generation facilities.

It needs to be highlighted that the legislator accounts for the fact that energy clusters will be able to compete for financial support under the tender procedure starting from 2H2017, and in practice, their operations under the new system will begin in 2018 at the earliest - tenders for energy clusters will be announced no sooner than in the second half of 2017.

Public consultations - potential directions of the legal norms

The public consultations stressed openness and willingness to support cluster initiatives. At the same time, many issues requiring clarifications and consideration were brought to light, such as cluster balancing, the rules of grid usage by the cluster, clear definition of the coordinator role and precise legal regulation of licences.

In addition, it seems that a list of constitutive characteristics of energy clusters should be prepared so as to clearly define the requirements that need to be met by entities wanting to set up a cluster.

The operations of energy clusters - even though they need to be regulated in more detail - should be seen as an interesting form of investment in power generation. What is more, energy clusters may become an alternative for the owners of renewable energy sources that function in the green certificate system. All potential investors must keep in mind that a separate tender-based technological basket has been introduced, which should make it easier to obtain support for projects relying on various (inter alia solar and wind-based) power generation sources.

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