The Energy Efficiency Act
New obligations for suppliers of electricity, heat and natural gas to end users
Legal Alert (15/2016)
Effective from 1 October 2016, a new Energy Efficiency Act will enter into force with a view to implementing Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012. The Act introduces a number of material changes to the energy efficiency support mechanism, such as doing away with the bidding process, simplification of the white certificate granting procedures, gradual resignation from substitution fees and energy audits.
The Energy Efficiency Act
The new Act provides for continuation of the energy efficiency certificate (white certificate) system, which was introduced in Poland in 2013. The system was established in order to stimulate the activities aimed to ensure efficient use of electric and thermal energy as well as gaseous fuel in Poland. Unfortunately, as recent years have shown, the extent to which the objectives of the Act have been accomplished, is limited.
Addressees of the obligation – obligated parties
The major change concerns the way in which the energy efficiency obligation is fulfilled by obligated parties. Obligated parties mean, among others, suppliers of electricity, heat or natural gas to end users. The final energy savings which the entities specified in the Act are to realize are at the level of 1.5% of the annual savings. Under the new Act, the obligated parties will have to:
- implement an energy efficiency project (projects) at the end user to realize final energy savings confirmed by an energy audit; or
- obtain an energy efficiency certificate and surrender it to the President of the Energy Regulatory Office.
Thus far, the obligated parties have been able to fulfil their energy efficiency project obligations by obtaining energy efficiency certificates and surrendering them to the President of the Energy Regulatory Office or by paying the substitution fee. In practice, the aforesaid obligation has been fulfilled through the payment of the substitution fee.
The new Act limits the possibility to pay the substitution fee for purposes of fulfilment of the energy efficiency obligations. The obligated parties will be able to discharge the energy efficiency obligation through the payment of the substitution fee representing:
- 30% of the obligation for 2016;
- 20% of the obligation for 2017;
- 10% of the obligation for 2018.
Fulfilment of the obligation through the payment of a higher substitution fee will be possible where an obligated party proves that it was unable to obtain white certificates on an exchange at a price that would not be higher than the substitution fee.
The limitations imposed by the Act are aimed to make the obligated parties actively involved in making or promoting energy efficiency investments.
The unit substitution fee (per ton of the equivalent oil) is PLN 1,000 for 2016 and PLN 1,500 for 2017, with the proviso that the substitution fee for 2018 and each consecutive year will be increased by 5% vs. the unit substitution fee applicable in the preceding year.
The aforesaid solution attracts special interest considering a lack of supply of white certificates on the market in the past and concerns about their supply in the future. Additionally, business entities worry about the fact that the possibility to implement energy efficiency projects directly at the customers is limited.
Obtaining white certificates
Another important change concerns the way energy efficiency certificates will be obtained. It should be emphasized that so far white certificates could have been obtained in a bidding process organized by the President of the Energy Regulatory Office to select energy efficiency projects. A system based on the bidding process organized by the President of the Energy Regulatory Office was considered ineffective and the processes organized thus far have not guaranteed that the available pool of energy efficiency certificates will be used.
The new Act does away with the bidding process, emphasizing the necessity to simplify and accelerate the white certificate granting procedures. At the same time, the minimum energy savings threshold guaranteed by projects which may obtain energy efficiency certificates of at least 10 tons of the equivalent oil on average per year has been maintained.
The new Act contains an additional section governing the performance of energy audits at business entities. The list of entities subject to the said obligation is very long and includes all large enterprises (i.e. except SMEs), regardless of their industry and consumption of electricity, heat or natural gas. Energy audits should be performed every four years.
The aforesaid obligation to undergo an energy audit will not apply to the owners of micro, small and medium-sized enterprises as well as entities having an energy management system or an environmental management system in place, where an energy audit has already been performed.
The Energy Efficiency Act – controversies and summary
The new Energy Efficiency Act caused considerable concern of the market participants as early as at the time when it was being drafted as it does not offer the possibility to take account of projects which have already been implemented in the project support system (finally, the legislator considered investments carried out before 1 January 2014 to be non-eligible for support).
It is understandable that support must be correlated with the incentive effect, which is not the case for projects that have already been completed. At the same time, the argument that the date of entry into force should be postponed is not baseless, either. The central argument put forward by the industry is that a number of entities, such as cooperatives, housing communities or enterprises which have carried out costly investment projects under the previous Act will not be able to take part in bidding processes, thus receive any support. It may not be ruled out, though, that the said entities will have a chance to receive support. Rumor has it that the President of the Energy Regulatory Office is to announce one more bidding process in 2016 which, in line with the transitional provisions set forth in the new Act, could be handled following its entry into force.
To sum up, the new Energy Efficiency Act introduces a number of important changes to the energy efficiency support mechanism. Resignation from bidding processes should actually lead to simplification of white certificate granting procedures. This, in combination with the limitations on the fulfilment of the obligation by the obligated parties, should contribute to a rise in the number of energy efficiency projects that have actually been implemented (including in collaboration with the customer – e.g. in the ESCO formula).